October 17, 2018 @ 2:00 am

17 OCTOBER 2018

Slippery slope

India must diversify its energy basket more proactively

India’s economic fortunes continue to be tied to the sharply fluctuating price of oil. At a gathering of prominent oil ministers in New Delhi on Monday, Prime Minister Narendra Modi urged oil-producing countries to reduce the cost of energy in order to aid the global economy in its path towards recoveryMr. Modi also called for a review of payment terms, demanding the partial use of the rupee instead of the U.S. dollar to pay for oil, in order to ease the burden on oil-importing countries in the wake of the strengthening of the dollar. With well over 80% of its oil demand being met through imports, India clearly has a lot at stake as oil prices have risen by as much as 70% in rupee terms in the last one year. Notably, speaking at the same event, Saudi Arabian Energy Minister Khalid A. Al-Falih refused to openly commit to lower oil prices, opting instead to say that the price of oil could have been much higher but for the efforts taken by his country to boost supply. This is not surprising given the absence of significant rival suppliers in the global oil market willing to help out India.

India’s policymakers now face the difficult task of safely steering the economy in the midst of multiple external headwinds. For one, the current account deficit widened to 2.4% of gross domestic product in the first quarter of 2018-19 and is expected to reach 3% for the full year. The rupee, which is down about 16% since the beginning of the year, doesn’t seem to be showing any signs of recovery either. Further, the growth in the sales of petrol and diesel has already been affected adversely as their prices have shot through the roof. All this will likely weigh negatively on the prospects of the Indian economy, the world’s fastest-growing, in the coming quarters. In this scenario, the decision to marginally cut taxes imposed on domestic fuels is unlikely to be of any significant help to consumersWhat is required is a steep cut in Central and State taxes for the benefit to carry through to the consumers, which, of course, is unlikely given the government’s fiscal needs. Another long-term solution to the oil problem will be to increasingly tap into domestic sources of energy supply while simultaneously encouraging consumers to switch to green alternatives. This will require a stronger policy framework and implementation. In the short term, the government could look to diversifying its international supplier base to manage shocks better. But such a choice carries geopolitical risks, such as in the case of Iran. Since it will take a length of time to wean the economy off oil imports, policymakers should also be willing to think beyond just the next election if India’s over-reliance on oil is to come to an end for good.

Istanbul mystery

Where in the world is Jamal Khashoggi? The Saudi government must tell us

The disappearance of Saudi Arabian journalist Jamal Khashoggi has triggered a diplomatic storm. Countries including the U.S. and Turkey as well as international organisations like the UN have turned up the pressure on Riyadh to reveal the truthThe journalist, known for his columns in the Washington Post critical of Saudi Crown Prince Mohammed bin Salman, has not been seen since he entered the Saudi consulate in Istanbul on October 2. The Turkish authorities have released video footage of Mr. Khashoggi entering the consulate and said there is no footage of him leaving the building. Saudi Arabia maintains that the journalist, who visited the consulate for a divorce certificate, left safely, but has not offered any evidence for this. Mr. Khashoggi’s Turkish fiancée, who waited for him outside the consulate for hours, vows he never returned. There are already several theories doing the rounds on what might have happened to him. The most horrifying among them draws from reports quoting Turkish investigation officials that Mr. Khashoggi was killed inside the consulate and his body dismembered for disposal. On the same day that he entered the consulate, a 15-member team from Saudi Arabia had arrived in Turkey and was inside the consulate building. Turkish officials say they were military and intelligence officials, including a forensic expert, who carried out the assassination within two hours of Mr. Khashoggi’s arrival, and left immediately thereafter.

Saudi Arabia has so far rejected the reports of Mr. Khashoggi’s killing. But if he did leave the consulate, as Saudi officials claim, the burden of proof is on them to prove that he actually did so. They have not even been able to offer a credible explanation on what happened to him, except to repeatedly claim that he left the consulate safely. They took 13 days since Mr. Khashoggi’s disappearance to let Turkish officials finally search the consulate premisesEven U.S. President Donald Trump, a strong backer of the kingdom’s 33-year-old Crown Prince, warned of “severe punishment” if Riyadh was found to be responsible for the disappearance. The controversy is particularly damaging for MBS, as Mohammed bin Salman is widely known, who spent millions to project himself as a social and economic reformer who could lead Saudi Arabia into the 21st century. Chief executives of some of the potential big-ticket investors, including JP Morgan, Blackstone and BlackRock, have already pulled out of an investment conference due to be held in Riyadh next week, which MBS is expected to address. Any delay in letting the world know the truth about Mr. Khashoggi will only make matters worse for thekingdom, which is already known for its poor human rights record, including on MBS’s watch. The international community, including the U.S., a crucial ally of Saudi Arabia, has a moral responsibility to maintain the pressure on the kingdom till it reveals the truth.

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